A personal blog sharing ideas and observations on start-ups, the vc industry, technology, and life.

Tuesday, June 26, 2007

JavaScript-Enabled Services, SaaS, and Open Source: Friction Free Models that Drive the Reallocation of Capital

What do JavaScript-enabled services, SaaS, and Open Source all have in common?

They are product delivery models that dramatically reduce the cost, time, and resource requirements to test products and their purported value.

The risk to trial is mitigated and individual users can experiment and validate value in isolation of the broader enterprise.

More than ever, companies that focus on reducing the risk and resources required to trial their product or service are outperforming "heavy" footprint product companies.

The capital markets are highly efficient and dollars quickly flow to the highest yielding assets. IT markets, however, are characterized by high degrees of friction that artificially limit capital reallocation and flow.

Once economic actors are able to validate the "value per unit," the dollars will flow:

at a rate proportional to the relative increase in yield (value/cost) from product A to product B and

at a rate inversely proportionate to the number of barriers that limit the free flow of capital to product B (the higher the # of frictions, the slower the reallocation to the economically advantaged unit of value).

In summary:

market are efficient and capital flows to the highest yield assets

products that provide a higher yield (value/cost) will attract capital